Monday, 18 June 2018
Crass comments on Vollgeld from “professional economists”.
The recent Vollgeld referendum in Switzerland lead to a number of so called professional economists opining on the subject and doing little more than displaying their ignorance. Here is a selection of some of the not too clever material.
Lars Syll (for whom I normally have plenty of respect) claimed that Vollgeld would result in “debt deflation”. In fact as the advocates of Vollgeld / Sovereign Money make clear, under Vollgeld, central bank and government implement whatever amount of stimulus they think is needed to keep the economy at capacity / full employment, much as they do under the existing system.
Next, there was Jeremy Warner (for whom I have very little respect). For some of his nonsense, see this "Ralphonomics" article.
Next there was David Beckworth. To judge by the material under his heading “The knowledge problem” he is clearly under the illusion that under Vollgeld, lending decisions are taken by central banks. Had he bother studying the subject he would have discovered that under Vollgeld, lending decisions are actually taken by commercial banks or other private sector lending organisations, just as they are now.
Confirmation that Beckworth really does labour under the above illusion comes where he says “With such large balance sheets and the sole power to determine who gets money, central bankers would find…”. In fact, under Vollgeld, the central bank and government simply create new money where needed (as suggested by Milton Friedman in his 1948 American Economic Review paper), and spend that money into the economy. It is then up to tens of millions of firms and households to compete for that money just as they compete for money under the existing system.
But top prize for complete gibberish must go to Richard Murphy.
First, he claims Vollgeld “puts inflation at the core of economic policy”. Well it already is at the “core”: central banks decide how much stimulus to implement depending on what the inflation outlook is!!!
Second, he claims that money which is not debt based is not money. That’s BS. Gold, cowrie shells and other commodity based currencies have nothing to do with debt. Those holding British “sovereign” gold coins between 100 and 200 years ago owed nothing to anyone, and no one owed them anything.
Third, he says there is a “very real danger is that a central bank would underestimate the amount of money needed in an economy because their perpetual concern would be the risk of inflation meaning that they would always are on the side of caution.” Well that problem arises under the existing system: sometimes central banks and governments pitch demand too low. Indeed they were doing that BIG TIME during the recent crisis!!!!! What planet has Murphy been living on for the last ten years???
Fourth he says “Give central bankers control of the money supply, and you can forget democratic control of the economy for evermore.” What – so the electorate cannot vote to have government collect more in tax and spend more on health, education etc (or simply print money and spend on health and education)? BS again.
Fifth, he says “since central bankers would also then control the ability of the government create money to spend on its own programs guarantee that this would also mean perpetual austerity, and enforced government balanced-budget, with all the crushing implications that this has the public services.”
Had Murphaloon actually read Positive Money’s proposals (and the proposals of other V/SM advocates) he’d have discovered that under a PM system, the central bank creates whatever amount of money per year it thinks is needed to keep the economy at capacity and give us the 2% inflation target, with government then spending that money (and/or cutting taxes). In fact Ben Bernanke gave his blessing to that idea: see para starting “A possible arrangement…" here.